All Is Not Well in Tech Sector, AI Growth Slows, TSMC Expensive. Samsung, SK Hynix More Attractive

  • The rally of the Asia Tech sector (+24% YTD) is highly concentrated in a handful of stocks. TSMC is up 64% but Samsung is down -22% YTD.

  • With the exception of AI, end-demand isn’t great.

  • End-demand in the Consumer and Enterprise segments is flattish; related stocks have underperformed. We see little reason to expect significant growth in 2025.

  • Important turnarounds in 2025 will be Industrial electronics back to growth in 1H25, Auto electronics bottoming out mid-25.

  • Smartphone up 8% but below 2019-21 level. PC flattish. x86 Server flattish. Telecom capex declining. Automotive electronics declining.

  • AI is the most disruptive trend since Cloud in 2010. Years of increasing Capex are in front of us. But short-term, stocks are properly valued to rich, growth is slowing.

  • AI is the only growth driver but growth is slowing; related stocks have outperformed but are often expensive. We expect AI related Capex to increase in years ahead, but stocks probably need a consolidation period.

  • Korean Memory looks attractive, both on valuations and low expectations, despite short-term concerns such as high inventory for PC DRAM.

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